Investors Demand Oil Companies Improve Disaster Response Plans

The oil industry has been under heavy scrutiny over the past few months thanks to the Gulf of Mexico oil spill. Criticized for sharing an outdated emergency plan for a disaster in the Gulf, the industry has responded with a rapid response plan. Some cynics respond with a yawn, and assume that in the long run, oil companies will return to business as usual as the events of this spring fade from memory.

But concerns over safety in the oil and gas sector will not go away. It just may be investors who become the impetus behind oil companies becoming more transparent about their operations, especially those engaging in risky deepwater drilling projects. With US$2.5 trillion dollars in assets under their belts, 58 investors have joined forces, demanding that oil companies improve their disaster response plans.

Ceres, a Boston-based non-profit that focuses on promoting investor engagement in social and environmental issues, has partnered with investment firms based in the US. Together, they drafted a form letter sent to 27 CEOs of oil and gas firms that demand contingency plans in the event of an oil spill. Some of these investors include CALPERS, the California pension giant, as well as fund managers from large states such as New York, Florida and Pennsylvania.

Governance disclosure, centered on an explanation of how managers and board members participate in spill response planning and prevention.

The total amount of investment the companies put into offshore drilling safety technologies for the past three years.

Procedures over how subcontractors are vetted, selected, and supervised for offshore drilling projects.

Scenario plans detailing plans in the event of an offshore disaster, with details explaining how the company’s management developed the steps.

BP’s difficulties have reverberated in Great Britain, where pension funds took a hit as a result of the energy giant’s sharp decline in value. The large percentage that these pension funds have invested in the energy sector, paired with the future entitlements that these pensions must provide, no doubt have spooked these managers from Sacramento to Albany. If these gigantic investors succeed in pressuring energy companies to improve their safety records and disaster response plans, there’s a good chance future accidents will not turn into something so catastrophic. To that end, the same pension funds also sent letters to the 26 or so insurance companies that provide coverage for offshore drilling activities.

The lessons from BP’s recent experience in the Gulf are numerous. The instances of politicians grandstanding are even more plentiful. Could it be that economic pressure is the best way to reduce the possibility of something like the Deepwater Horizon spill from happening again?